Minnesota Legislature: Dayton aide says taxes on table

Senate Majority Leader Tom Bakk, DFL-Cook, speaks during a press conference as Speaker of the House Paul Thissen, DFL-Minneapolis, right, listens at the State Office Building in St. Paul, Minn., on Wednesday, January 9, 2013. In the background is Assistant Majority Leader Katie Sieben, DFL-Cottage Grove.
(Pioneer Press: Ben Garvin)

Gov. Mark Dayton says he can't erase Minnesota's $1.1 billion budget shortfall with spending cuts alone, and he has a simple message for business leaders who disagree: Show me where you'd slash state spending.

Cuts are part of the budget fix, but "fair, progressive, sustainable revenue" -- in other words, tax increases -- need to be part of the solution, Tina Smith, Dayton's chief of staff, told more than 1,600 business leaders and policy makers at the Minnesota Chamber of Commerce's annual legislative dinner Wednesday, Jan. 9, at the St. Paul RiverCentre.

Smith was filling in for Dayton, who's recovering from back surgery.

Saying "we need to talk turkey here," she said the state faces not only a $1.1 billion projected deficit but a shortfall approaching $2 billion if inflation and an additional $1 billion IOU to the state's schools are taken into account.

The state got into this mess over a decade by spending more than it raised and filling the gaps with "one-time money, borrowing and other gimmicks and games rather than fixing the problem."

"We need to slow the growth in costs, especially in health care spending," she said.

"We need to reform how we deliver services, so we're delivering the best value for the money we invest.

"And we need a tax system that pays for the services Minnesotans expect and deserve in a fair, balanced and sustainable way.

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That requires spending cuts, she said, but cuts alone won't do it.

"And to those who think cuts are the only answer, we challenge you -- with sincerity -- to tell us what exactly you believe government can stop doing."

In response, Laura Bordelon, the Chamber's senior vice president for advocacy, said spending control "isn't just cuts." She said business wants to work with the administration and lawmakers to overhaul state programs, redesign the way services are delivered and update government structures to hold down costs.

"Let's start there," before considering tax increases, she said.

Bordelon said business wants to work with Dayton and the Democratic majority in the Legislature to reform the state tax code to make it more competitive with other states and nations. She thinks most legislators agree.

"None of these folks ran on harming the economy or making it hard to create jobs in this state," she said.

According to the November economic forecast, the state's general-fund spending for the current biennium is projected to be $33.9 billion, with enough money to pay down $1.3 billion owed school district. For the 2014-15 biennium, spending is projected at $36.8 billion.

Dayton's message wasn't new. He's been saying for months he will propose tax increases later this month to balance the budget. But this was his most direct challenge to tax opponents to show him where else he can cut spending.

While Smith didn't offer specifics, Dayton has said he will propose an income tax increase on the top 2 percent of earners. She noted that the highest earners pay about 9.7 percent of their incomes to state and local taxes, while middle-class earners pay about 12.3 percent.

Smith threw one crumb to the business community, announcing that the administration will require the Minnesota Pollution Control Agency to complete environmental permits for businesses within 90 days. The agency now processes 96 percent of those permits within 150 days.

Earlier Wednesday, the new Democratic leaders in the state House and Senate outlined a relatively simple wish list for the legislative session that focuses on boosting the economy and balancing the budget with a combination of tax increases and spending cuts.

"We want to invest in the things that are going to grow our economy and grow our middle class, and we want to do it in a way that will create a stable and balanced budget," House Speaker Paul Thissen, DFL-Minneapolis, said at a Capitol news conference.

"It's simple stuff, nothing too groundbreaking," Thissen said a day after Democratic-Farmer-Labor lawmakers took control of both chambers.

Their broad outline was short on details, but Thissen said they want to spend more on early childhood education and state colleges and universities.

DFLers also want to overhaul the tax code to make it a "fair tax system but also one that is competitive," he said.

That likely means higher taxes for the wealthiest taxpayers, as Dayton has proposed. But Thissen said it also might require extending sales taxes to some goods and services that currently are exempt and eliminating corporate tax breaks that "don't make sense any more."

Senate Majority Leader Tom Bakk, DFL-Cook, said, "There is a reasonable conversation to have with the Minnesota business community" on reducing their tax subtractions and deductions for foreign earnings.

Republican lawmakers will urge the new DFL majority to balance the budget without new taxes.

"We should manage the growth in spending and set priorities, trying to do things that are expected in ways that make sense, both through reforms and efficiencies, and don't burden the economy with additional costs to do business in the state of Minnesota," said Senate Minority Leader David Hann, R-Eden Prairie.

Bakk said he and Thissen have a handshake agreement to guarantee no government shutdown this year. Thissen stated the Legislature will get its job done on time -- by May 20, the constitutional deadline for adjourning.